Players in the coffee sector have had much to celebrate during the course of the previous year. For the first time ever, coffee exporters combined to supply USD 1.2 billion worth of coffee to the international market. It was such a huge success that it dominated the news headlines and even inspired the authorities to set even higher goals.
At the beginning of the existing fiscal year, the Ethiopian Coffee and Tea Authority, a government entity in charge of monitoring the industry, set a goal of exporting USD two billion during the period. Unfortunately, recent events on the international market suggest that the expected revenue from coffee exports may be an unrealistic goal.
In comparison to the previous year, the price of the commodity on the global market has dropped by half. As a result of reduced purchasing power, interest from buying countries has waned. Both of these factors are impeding Ethiopia’s plans to profit from the commodity. Also making a comeback is Brazil, which has been recovering from a frost disaster that wiped out its coffee crops.
The rising rate of contract terminations adds further cause for concern.
Several contracts made by exporters with buyers in European countries have been terminated. Warehouses are overflowing with ready-to-ship coffee of the highest export quality. The Authority disclosed that 288 contracts of 181 exporters were terminated in the first five months of this fiscal year. If the termination hadn’t happened, they would have shipped 28,000 metric tons of coffee to different European countries.
There was a hearing before the Agriculture Affairs Standing Committee of the House of Peoples’ Representatives of Ethiopia on February 6, 2023, where Members of Parliament (MPs) voiced concerns and asked questions of the relevant Authority. During the half-year performance presentation to the standing committee, Fikru Regassa (PhD), state minister for agriculture, said that the country generated a little over a billion dollars from exports of agricultural products.
The state minister indicated that coffee, tea, and spices make up the largest portion of agricultural products. However, only 120,000 tons were actually exported, although 160,000 tons had been planned. Agricultural commodities brought in USD 664 million in the first half of the year, which is around 86 percent of the forecasted FX.
The government benefited financially from the export of horticulture commodities to Europe, though only about half of the volume planned was exported. About 140,000 tons were exported, generating USD 356 million, but the plan was to export 246,000 tons for a proceed of USD 322 million.
“Even though the quantity of our export was small, the income was above expectations,” Fikru said when presenting the export performance of horticulture products. He did not give any comments with regard to the declining performance of the longtime country’s backbone of foreign exchange, coffee.
Among the MPs raising concern specifically about coffee was Tadele Burka (Ass. Prof.), who requested a further explanation for the bizarre figures he noticed on the five-month coffee export report.
“How is this evaluated?” He asked, questioning how the income gets to be larger when the quantity is meager. From the 109,000 tons of coffee exported in five months, which was 79 percent of the planned quantity, USD 615 million was generated, accounting for 93 percent of the planned income.
Tadele was also inquiring for more explanation about the meager performance of value-added coffee exports. Only 61 percent of the planned 1,232 tons of value-added coffee have been exported so far.
The heads of the Ethiopian Coffee and Tea Authority wasted no time in putting the blame on the situation in the international market that resulted in the price fall. Shafi Omer, deputy general director of the Authority, repeatedly blamed the declining purchasing power of buying countries as a reason.
“A pound of coffee was being sold for USD 2.5 last year during the same period. It has now declined to USD 1.5, a one-dollar decline per pound, and about a two-dollar decline per kilogram of coffee,” Shafi explained to MPs. “We mostly export to European countries, and due to the economic problems they are facing, exporters are having their contracts terminated.”
The biggest concern that remains among the officials and traders themselves, however, is the drastic price increase of the commodity in the local market, while the opposite is happening in the global market. The Authority’s officials also cited this as their biggest concern.
Shafi says the local and international markets not matching is another major problem. “Coffee is getting expensive locally but is getting cheaper in the international market. This has been forcing exporters to shell out a lot of money for the procurement of coffee from suppliers while getting lower value from the export.”
Officials at the Authority are considering expanding the country’s market presence in countries like the United Arab Emirates, Taiwan, and China. Moreover, pushing for the extension of contracts by the buyers in the European countries is also another action the Authority is taking in a desperate move to keep the numbers high.
Despite the reasons forwarded by the Authority’s heads, the chairperson of the standing committee, Solomon Lalie, was firm enough in demanding a solution.
“The Agriculture Ministry and the Authority should give much focus to it and bring the solution together with the government,” he said. “Even though the foreign currency is higher than last year’s, the export quantity must grow.”
While acknowledging the global problem as one of the contributing factors for the low performances, Solomon said that problems happening locally, such as contraband trade, are also playing massive roles. “Coffee is being traded illegally in contraband; there are indications that other countries are exporting our coffee,” he said.
The Authority promises to double down on alleged contraband activities with the help of technology and stringent procedures. However, Shafi assured MPS that illegal trade and contraband have only a minor role in the recent drop in exports. He said, “It is always just the market condition,” and “it is never an issue of smuggling or shortage of coffee to supply to the global market.”